RIIA Conference

Greg Smith was an upper middle level manager at Goldman Sachs who made quite a splash last week by publicly resigning via open letter in The New York Times, alleging that Goldman’s culture had changed radically (not for the better) and that he no longer believed that Goldman was putting its clients’ interests first. Reactions predictably ran the gamut from those who saw it as supportive of a helpful (for them, at least) narrative placing Wall Street and the financial services industry at the center of all that is wrong with America to those who can’t imagine that anyone – much less a member of Goldman management – might conceive that it was in the business of doing anything but making money and, in the words of Michael Lewis’s Liars’ Poker, ripping its clients’ faces off.  I am reminded of Captain Renault from Casablanca who was shocked – shocked! – to find gambling on the premises at Rick’s and then collected his nightly winnings.

However one looks at Mr. Smith’s very public departure from Goldman, it provides a useful frame for our discussion today in that (a) advisor status vis-a-vis clients (fiduciary or not) and, more generally, how we treat them and deal with their interests is crucial to the issues to be addressed here; (b) there is inherent tension between serving clients and making a living; and, perhaps most importantly, (c) the public has many reasons to be cynical about what we do given the kinds of issues raised by Mr. Smith’s missive and on account of the very difficult markets faced by retirees and pre-retirees simply hoping for the best.

Our topic today – Building Retirement Trust and Confidence and Winning New Business in Times of Continuous Crises – is a mouthful.  So please let me break it down for you a bit by way of introduction.

Today’s market environment, largely on account of the internet, is both highly competitive and information-rich. Given that we have been suffering a secular bear market for roughly a dozen years, consumers are understandably frustrated with the general conditions they see and the personal difficulties they are experiencing. The so-called “retirement crisis” and its variants (such as the retirement income crisis) and the more general financial crises so frequently seen (and felt!) are ubiquitous but no less real.  As advisors we are charged with offering consumers advice, guidance, support, products and services to ameliorate the impact of these crises and, we hope, to secure their future.

That’s a very tough job in the best of circumstances and a job that is made harder by unjustified marketing, misleading claims, the difficult environment and cynical consumers.

In my view, good advisors today would be well-served to approach their prospects and clients and financial services companies ought to approach their customers with respect and acknowledge that product and competitor information is readily accessible. Those who provide consumers with comprehensive service and product options, perhaps even including their competitors’, can earn the trust of the consumer even if it does not result in an immediate sale. When impartial and candid – even helpful – information is provided, consumer loyalty is increased and greater lifetime profitability per customer can be achieved.

This concept is generally known as trust-based marketing and is based upon building consumer relationships through trustworthy dialogue and unbiased information. It was originated by Prof. Glen Urban, former Dean of the MIT Sloan School of Management.  Prof. Urban argues persuasively that trust-based companies have higher customer retention and more stable revenue streams. Moreover, such businesses will ultimately have higher sales volumes and lower marketing costs than companies that survive on past marketing strategies designed simply to drive sales by accentuating the positive and masking the negative. No financial product or service is right for everyone – they all have pros and cons.  Moreover, our overarching goal should be to help our clients through good planning and effective execution.

This client-focused approach can be abused and is often honored only in the breach, but I think it makes tremendous sense.  Perhaps equally as importantly, it is consistent with the required ethics as well as the legal and regulatory framework of our industry. Best of all, it is simply the right thing to do. That each of you took the time and trouble to be here, to support the RIIA and to tackle this issue head-on gives me added hope for the future of our industry.  But let’s be honest, doing it consistently can be difficult, particularly because it asks us to do what we’re hard-wired not to do – forego immediate gratification for the longer-term greater good.

Our panel today will discuss how we can build consumer trust and confidence in ways that enhance the distribution of quality products.  Obviously, distribution is a crucial piece of this puzzle in that a great product does no good if nobody uses it and (never to be underestimated) we all like to eat.  And now, on to our panel….


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